Dynamic Effects of U.S. Budget Deficit and Labor Productivity - Real Wage Gap On Stock Market Performance
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Keywords

Budget Deficit
Productivity-Real Wage Gap
Unit Root
Cointegration
Vector Error-Correction Model

How to Cite

Rahman, M. . ., & Mustafa, M. (2015). Dynamic Effects of U.S. Budget Deficit and Labor Productivity - Real Wage Gap On Stock Market Performance. Journal of Business Strategies, 32(1), 55–69. https://doi.org/10.54155/jbs.32.1.55-69

Abstract

This paper investigates the dynamic effects of annual U.S budget deficit as a
ratio of GDP and labor productivity-real wage gap on US stock market performance.
The sample period runs from 1950 through 2012. The standard cointegration methodology
is appropriately applied. All the aforementioned variables are nonstationary
in levels revealing I(1) behavior. The coefficient of the error-correction term of the
vector error-correction model (VECM) has expected negative sign with statistical
significance confirming long-run unidirectional causality stemming from the independent
variables to the stock market return. However, the speed of adjustment towards
a long-run equilibrium is slow as reflected in the low numerical coefficient
of the error-correction term. The evidences on short-run interactive feedback effects
are also very weak.

https://doi.org/10.54155/jbs.32.1.55-69
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